By Neil Saunders
CVS’s BeautyIRL concept is a big step in the right direction and helps to elevate CVS’s beauty proposition. However, CVS has much work to do in marketing, events, and other customer outreach to get customers to embrace it.
Overall, CVS delivered a good set of numbers showing continued corporate strength, especially on the healthcare side of the business. The acceleration in comparable sales growth is particularly pleasing, although it comes off the back of a weak set of prior-year numbers when comparables fell by 2.8%
In a break with tradition, CVS has posted a front-of-store sales increase of 0.8%. While this is a shallow gain, it is a step in the right direction. However, our outlook on the retail side remains cautious, and we are split as to whether this represents the start of a new upside for CVS’s retail operation or is just an anomaly.
When looking at a change in fortunes, context is always necessary. In the case of CVS, the context is that front-of-store sales have fallen during this quarter for every year since 2012. Last year, the number dipped by a relatively sharp 2.8%. This represents a significant erosion of trade, which not only underlines CVS’s issues in retail, but also makes a modest 0.8% gain rather unimpressive.
Another reason for skepticism about the direction of the numbers is the general state of the economy. As consumers feel confident, there has been a natural tendency to spend more, including on personal care and beauty products. CVS has engineered its uplift at a time of robust consumer expenditure, and it has grown at a slower pace than the overall beauty and general merchandise markets. The real test will be whether CVS can both maintain its growth into next year and boost its market share at existing stores.
CVS has started to take more interest in its front-of-store space. A main initiative is the BeautyIRL concept, which is being tested in some four stores. This expanded beauty offering has features like a Test-and-Play Hygiene Bar, a Mini Must-Have boutique selling small product samples, and services such as a hair and nail salon in partnership with Glamsquad. An extended assortment of products and brands are also offered.
This concept is a big step in the right direction and helps to elevate CVS’s beauty proposition. However, CVS has much work to do in persuading shoppers to embrace the new offering. Because of years of neglect, consumer opinions and views on CVS as a destination for beauty are both low and lackluster. The down-at-heel drugstore perception lingers strongly. CVS will need to counter this creatively with marketing, events, and other customer outreach.
The other slight issue is that the concept only puts CVS on a par with what other retailers in this space have done or are doing. Stores like Ulta already offer a wide range of beauty services, and establishments like Macy’s are boosting their beauty propositions. CVS will have to do more if it is to accelerate growth in beauty.
Outside of beauty, there is also much work to be done. The majority of stores are still dingy and uninspiring. This means CVS underperforms in categories like general merchandise. Remedying this requires much more effort than the addition of a beauty concept to select stores.
Neil Saunders is managing director of research firm GlobalData Retail.